Report: state missing out on collecting millions for casino regulation

By Brian Lockhart, Staff Writer

Published 1:46 pm, Friday, August 28, 2009

With the state facing a budget deficit in the billions of dollars, it would seem likely officials would take a hard look at recouping millions of dollars worth of regulatory costs a recent independent report concluded Connecticut failed to levy on the two Indian gaming casinos.

But Jeffrey Beckham, a spokesman for Republican Gov. M. Jodi Rell's budget office, which negotiates the annual payments for the direct and indirect regulatory costs accrued for oversight of Foxwoods and Mohegan Sun, said that is easier said than done.

"Is it theoretically possible we ought to be getting more out of them? I suppose so," Beckham said. "But until you're in the room dealing with these people it's easy to kind of be an armchair quarterback and say you could do a better job."

Related Stories

A recent report on gambling in Connecticut by the Spectrum Gaming Group, commissioned by the state Division of Special Revenue, concluded that between 2004 and 2008 the state, despite standing agreements with the two casinos to pay "reasonable and necessary regulatory costs," failed to collect $16 million.

Regulatory costs are typically spent on salaries and benefits for gambling regulators, liquor control agents, and police.

"The practice in other states -- in a state like New Jersey or Colorado -- (is) the entire expense, to the penny, is paid for by casinos," Diamond said.

Paul Young, who became head of the state Division of Special Revenue in 2004, said the issue dates back to the late 1990s, when the Mashantucket Pequot tribe, operators of Foxwoods, sued Connecticut over a $3.9 million bill for regulatory costs over two years.

"From the beginning we charged the casinos the full direct and indirect costs and in the late 1990s they sued the state saying 'it's too much money,' " Young said.

In 1998, George Wandrak, then acting director of the Division of Special Revenue, sought a legal opinion about assessing the full regulatory costs from state Attorney General Richard Blumenthal and was given the green light.

But state officials -- in particular former Republican Gov. John G. Rowland's budget office -- according to Young and to the Spectrum report, decided to settle out of court and the lawsuit was withdrawn in 2001.

"The outcome of the negotiation concluded 'OK, we'll not charge the full costs even though technically and legally we can and did,' " Young said.

Young added the issue has not come up since he has been in office.

"It's what it is," Young said, adding while his division in theory is supposed to do the negotiating with the casinos, the state budget office took that over at the time of the lawsuit.

Blumenthal said he did not recall his office having any discussions with the Rowland administration to settle with the Mashantuckets.

"We believe strongly that our legal position was very persuasive and well-supported," he said.

Diamond said no one in the governor's budget office or the Division of Special Revenue was able to state definitively why the settlement was reached.

"One can only assume it was settled for the normal reasons," Diamond said. "I think there were risks on both sides of going to court &amp; But it's a very legitimate policy issue, especially when you've got the opinion from your attorney general saying 'we're entitled to it (full regulatory reimbursement).' "

A spokesman for the Mashantuckets did not return a request for comment.

Beckham, who also was not involved with the budget office during the time of the lawsuit, said should the state return to an "adversarial" position with the tribes, it might result in a protracted legal battle and the casinos withholding payments during tough budget times.

"These are calculated decisions that people who have responsibilities for these programs and regulating casinos have to weigh," Beckham said.

The Spectrum report does credit the state with making a recent effort to levy higher assessments. For fiscal year 2009, the assessment for Foxwoods was raised 16 percent over 2008 and 19 percent for Mohegan Sun.

It was unclear Wednesday exactly how much the state recouped and if it covered the full regulatory budget or if there was another deficit.

"That amount does not cover the entire cost, but it covers most of it," Beckham said.

But Spectrum also noted it is unlikely the state will be fully compensated in the coming years because the regulatory workload at the casinos is only increasing.

"With significant expansion at both casinos, there is much more gaming space to oversee," read the report.

"I think it's very worth pursuing," Daily said. She said she had not received a copy of the report and was surprised when told of the lost $16 million. She would like the Rell administration to pursue greater regulatory reimbursement, arguing it has been allowed to "slip through the cracks, badly."

But she also added the casinos have taken a hit in the poor economy.

"You can't get blood from a stone," Daily said. "The casinos are having a tough time too."

And Stillman acknowledged it might not be a good idea for the state to tempt either casino to file another lawsuit over the funds.

"I always think the best way to handle these things is negotiate," Stillman said.